Piper Sandler Highlights Continued Foot Locker Store Closures In Downgrade

Footwear and apparel retailer Foot Locker, Inc. FL is entering the final weeks of 2020 with many of its stores closed, and its long-term post-pandemic outlook has its own separate headwinds, according to Piper Sandler.

The Foot Locker Analyst: Erinn Murphy downgraded Foot Locker from Neutral to Underweight with a price target lifted from $25 to $29.

The Foot Locker Thesis: Foot Locker's near-term outlook is impacted by growing COVID-19 cases worldwide, and one out of 10 stores across the world are currently closed, Murphy said in a downgrade note.

In Europe, 50% of stores are temporarily closed, and the company doesn't have an advanced digital business there as it does in the U.S., the analyst said.

The retailer faces a "soft start" to the quarter, and its ability to recover lost sales in Europe is a challenging proposition, she said. 

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Over the long-term, Foot Locker faces a separate set of challenges as Nike Inc NKE continues to emphasize its own digital business, Murphy said.

Put in perspective, Nike's digital business is modeled to exceed $7 billion in 2020 versus Foot Locker's total expected sales of $7.6 billion, the analyst said. 

The risk to Foot Locker is that it loses exposure to the Nike brand, which accounts for 71% of Foot Locker's sales, she said. 

While Foot Locker is still Nike's largest wholesale partner, consumer trends are shifting toward Nike's digital business, which is expected to generate an incremental $2.6 billion in sales this year, Murphy said. 

"Despite the favorable tide that appears to be lifting all boats in the athletic space this year, we see FL as having a tougher time to returning to a sustainable positive L/MSD comp-growth rate on the other side of the pandemic."  

FL Price Action: Shares of Foot Locker were down by 2.37% at $38.35 at last check Monday. 

Photo by Dwight Burdette via Wikimedia.